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Posted on: August 4th, 2015

On the Horizon: Changes to A&A Guide for A/E Firms

An important audit and accounting procedural guide produced by a leading transportation trade association is undergoing some changes. The American Association of State Highway and Transportation Officials (AASHTO) started began updating the guide in 2014, and a draft with proposed changes is presented for review on the AASHTO website.

The External Uniform Audit & Accounting Guide, which was last updated in 2012, aims to assist users in understanding terminology, policies, procedures and audit techniques, and sources for applicable federal regulations. It is important that firms are familiar with this guide both from an internal financial operation and an external auditing standpoint. RKL’s Architecture and Engineering Industry Group reviewed the proposed changes in the current draft and below we break down what each change means for your firm.

Chapter 4 (Cost Principles)

  • Section 4.2 was added to this chapter to acknowledge State and Local Cost Principles. This addition was considered necessary in light of the creation by state and local governments of wage caps and other rules regarding cost principles and their application (for example, prescribing a treatment for overtime premium).
  • Chapter 4 also noted that the Federal Highway Administration (FHWA) is requiring governments to accept cognizant audits of Federal Acquisition Regulation (FAR) compliant rates. However, if funding is not coming from FHWA then governments can set more restrictive rules regarding cost allowability. Multiple rates may be necessary if you do work on both federal and state funded projects and the state has more restrictive rules.

Chapter 5 (Cost Accounting)

  • Section 2 of this chapter again emphasizes the need to analyze uncompensated overtime and reiterates that the burden of proof resides with the consultant firm to prove that uncompensated overtime will not materially impact the overhead rate.
  • Section 3 clarifies how to account for overtime premium in compliance with the FAR.
  • Chapter 5 also reworded best practice guidance related to bonus policies.

Chapter 7 (Compensation)

  • This chapter indicates that the National Compensation Matrix (NCM) has been issued and adopted. The draft notes that additional changes to this chapter may be necessary based on the latest rulings by the Armed Services Board of Contract Appeals (ASBCA). There have been recent discussions about a possible change to the NCM to include a geographical component, but no pending changes have been noted at this time.
  • This chapter also indicates that compensation should generally be reviewed for reasonableness in total vs. individual components of compensation (though individual components must be reviewed for allowance).
  • This section also re-iterates the guidance in FAR 31.205-6 dealing with compensation, advising that it should be reasonable for firms of the same size, industry, geographic area and engaged in similar non-government work under comparable circumstances. It further re-iterates that the consultant has to document compensation for each employee or job class for work performed.
  • With the severe drop in the Building & Construction Authority (BCA) rate (effective June 24, 2014), it could be possible that two rates may need to be calculated (for contract prior to the effective date and for contracts executed after the effective date). We will continue to monitor this possibility.

Chapter 8 (Selected Areas of Cost)

  • Edits to this section clarified employee morale, health and welfare costs. In particular, gifts related to service/achievement or related to compensation are the only allowable gifts allowed under the FAR guidelines. The proposed changes also indicate that morale, health and welfare costs are limited to house publications, health clinics, wellness/fitness, and employee counseling service. Food and dormitory services also fall under this guidance.
  • This chapter reworded common control with respect to related party rent, and also clarified travel expenses, including owned, leased, or chartered aircrafts and the requirements to constitute an allowable charge as well as personal usage of vehicles and related requirements.
  • Legal costs were also addressed in the draft as the use of legal counsel has grown immensely and ranges in use from very simple to very complex issues.
    • Given the unique nature of these costs, the guide illustrated several principles to help determine whether or not costs should be considered allowable.
  • This chapter also discussed directly related costs and indicated those costs can be eliminated or they can apply a disallowance based on using disallowed labor divided by total labor and multiplying it to those costs to determine a reasonable disallowance.

Chapter 10 (Guidance for Developing Audit Procedures)

  • This chapter addressed testing of labor and provided further insight regarding the size of the population and volume of transactions that should be reviewed.
  • It also reiterates that total direct and indirect labor costs recorded in the general ledger must be reconciled to the job cost system (direct labor) and the 941’s.

Chapter 11 (Audit Reports and Minimum Disclosures)

  • The reports in this section were updated to comply with current AICPA standards.

Chapter 12 (Cognizance and Oversight)

  • This chapter provided additional guidance regarding the cognizant approval process, who can perform a cognizant audit, and when a cognizant audited rate must be accepted.
  • Further guidance was provided that emphasizes the governmental auditor’s responsibility when utilizing the AASHTO Workpaper Review program discourages any self-imposed higher standard. Going forward, additional independent testing and auditing should only be performed where it is documented and substantiated that the engaged auditor has not met industry standards in performing their audit, workpaper development, and testing standards.

A/E firms with questions about these proposed changes should contact their RKL audit professional. Our team will continue to monitor changes to the guide as it moves through the approval process.

PCC Accounting Financial ReportingContributed by D. Hunter Mink, a manager in RKL’s Audit Services Group. Hunter is responsible for the planning and supervision of audit engagements for clients in various industries, including engineering, construction, manufacturing/distribution and higher education.



Posted on: August 25th, 2014

Grey Areas: How to Interpret FAR Cost Principles to Stay on the Right Side of DOT Auditors


When claiming expenses as part of a project with the state or federal government, A/E firms need to be diligent about documentation.

When it comes to doing business with State and Federal governments, there are many guidelines about what types of costs can and cannot be claimed on these contracts.  Most of these guidelines are laid out in FAR Part 31, specifically 31.205. However, when it comes to applying these principles, many states will differ in their interpretation.

Without debate, all state DOTs and Federal Government Agencies will agree that the costs of alcohol are unallowable no matter what.  But, that may be where the consistencies stop.  For instance, let’s say you treat your employees to breakfast.  Some state DOTs will take the position that the meal is unallowable because an employee should provide their own breakfast and it’s not reasonable for you to pay for it.  But, if as part of that breakfast, you are gathering your employees to report on company performance, most states would agree that the costs are allowable.

Another area that is an area of debate is travel, specifically, first class airfare costs.  You may encounter some states that see first class airfare and automatically disallow the costs.  But, what if the use of coach or economy class caused you significantly delays in travel and circuitous routing that wouldn’t allow you to get to your destination in a timely manner?  Then the cost may be justified.

How do you protect your firm and try to achieve consistency?  The best thing you can do is keep appropriate documentation.  Any time you wish to treat your employees, make sure to provide an explanation on the expense report and keep as much detail about the gathering as possible (e.g., an agenda and list of attendees); and as long as it is not an everyday occurrence it should be considered reasonable to want to take care of your employees to keep morale high.  On the off chance you do have to use first class airfare, make sure it’s documented that the coach/economy class airfare would have taken too long and it was time sensitive that you get to your destination.

Overall, the best bet is to be consistent in the way your firm accounts for its expenses and maintain sufficient documentation for the DOT auditors to understand your firm’s justification for those costs.

Have questions about FAR cost principles or other issues impacting your A/E firm? Contact Keith Eldredge, partner, at 717.843.3804 or keldredge@rklcpa.com.

Contributed by Marco Angelone, CPA, staff accountant, who brings experience working with government contract audits with a focus on compliance with FAR and cost accounting standards. 

Posted on: March 13th, 2014

RKL Among Nation’s Largest and Fastest Growing Accounting Firms


LOGOSTACKED_RGBLANCASTER, PA (March 13, 2014) – A familiar name in accounting services in the Central and Eastern Pennsylvania region is earning national attention in the industry for its climb to the 72nd spot on Accounting Today’s “2014 Top 100 Firms” list. Reinsel Kuntz Lesher (RKL), Certified Public Accountants and Consultants, earned several rankings on the annual survey, underscoring its impressive growth in the past year.

In its annual “Top 100” supplement, Accounting Today recognized RKL among its “Movers and Shakers” for the firm’s double-digit move up 11 positions from 2013. The firm was also named 9th on a list of “Pacesetters in Growth” and the 17th largest firm in the Mid-Atlantic region, in a list dominated by metropolitan-based firms from Pennsylvania, New York and New Jersey.

“In some ways, it’s a bit surreal to see RKL’s name among these big city firms. We’ve grown to meet the demand in our local communities for the services and capabilities that RKL provides. We’re very grateful to our expanding client base for making this possible,” commented RKL CEO Edward W. Monborne.

RKL’s geographic expansion played a significant role in the ranking. In the last two years, RKL added four partners and 30 team members to its York, PA office. Firm-wide, RKL employs 300 full-time and part-time team members, as well as 32 seasonal employees and interns.

The firm has also experienced in growth in various services areas including audit, business valuations, cost segregation, forensic/fraud accounting, litigation support, mergers and acquisitions, international tax and others. Additionally, RKL’s client base saw growth in the manufacturing/distribution, nonprofit, construction/real estate development and government sectors, among several others.

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Posted on: December 16th, 2013

Cost Segregation Study Benefits for PA Manufacturers

cost segregation for manufacturers in PAPerhaps no other industry stands to benefit more from cost segregation studies than the manufacturing industry. With the accelerated depreciation that cost segregation allows, you can increase tax deductions and pay less tax during the early stages of a property’s life, resulting in increased cash flow. Even if you built or purchased your facility several years ago, the benefits of a cost segregation study are not lost.

How can manufacturers take full advantage of the benefits a cost segregation study can provide? Click Here for Full Case Study

Posted on: December 16th, 2013

Tax Savings for U.S. Exporters

ic-disc tax savings for US exportersExport a product overseas or a product that’s eventually sold internationally? Closely-held companies that export – including the many family- or privately owned manufacturers that comprise a large portion of Central and Eastern PA’s business community – have a unique tax-savings opportunity in creating an Interest Charge – Domestic International Sales Corporation or IC-DISC.

Learn more about the potential tax savings and qualifications required for this tax export incentive. Click Here for Full Case Study

Posted on: December 16th, 2013

LIFO IPIC Tax Savings for PA Manufacturers

Central and Eastern Pennsylvania’s distinct economic climate, conservative financial environment and geographic proximity to LIFOmajor markets have fostered a healthy and thriving manufacturing sector. These characteristics are also important factors for why area manufacturers could reap major tax savings by leveraging nationwide inventory inflation rates via the Inventory Price Index Computation (IPIC) LIFO methodology.

In this case study, you’ll learn why manufacturers in Central and Eastern PA may want to consider using the IPIC LIFO methodology; its benefits and considerations; and some practical examples of tangible tax-savings. Click Here for Full Case Study

Posted on: October 10th, 2013

Summary Slides from NFP Event Keynote

Thank you for attending RKL and Susquehanna Bank’s “Keys to Not-for-Profit Success” event on October 2. To follow up on keynote speaker David Reinhardt’s inspiring message, we wanted to share the summary slides from his presentation with you.

Click Here to View or Download Slides

To learn more about RKL’s Not-for-Profit Services Group, click here.






Posted on: August 15th, 2013

Safe Harbor Overhead Rates

The recent past economic recession has caused many smaller A/E firms that have not historically worked in the public sector to jump in as a way to help smooth out the trough that has been experienced in the private sector. These smaller firms generally do not have the background to prepare FAR compliant overhead rates and are willing to receive lower margins to gain access to the public sector. FHWA, AASHTO, and State Agencies have established a ten-state pilot program to address this issue.

The program allows small firms to bid on a project by project basis with a safe harbor overhead rate of 110% for up to three years. There is no associated audit requirement to use that rate. The idea is to allow these smaller firms to get work at reasonably safe overhead rates while they develop their internal controls and structure so that as they grow and get familiar with the standards they can then develop FAR compliant overhead rates and start using those actual rates vs. the safe harbor rate.  After the three year program is over the results will be analyzed and the results will influence whether or not the program is extended and whether or not the rest of the states will be able to participate.